<PAGE>   1
                                   EXHIBIT 13

   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                                   OPERATIONS

FORWARD LOOKING STATEMENTS

When used in this Annual Report, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "projected," or
similar expressions are intended to identify "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties. including but not
limited to quarterly fluctuations in operating results, competition, state and
federal regulation, environmental considerations and foreign operations. Such
factors, which are discussed in the Annual Report, could affect the Company's
financial performance and could cause the Company's actual result for future
periods to differ materially from any opinion or statements expressed herein
with respect to future periods. As a result, the Company wishes to caution
readers not to place undue reliance on any such forward looking statements,
which speak only as of the date made.

DESCRIPTION OF BUSINESS

The Corporation is a vertically integrated processor of food products in one
industry segment. The Corporation is involved in the growing, processing,
canning, freezing, freeze-drying, packaging, marketing and distribution of its
products under its own trademarks as well as other branded, customer and private
labels. The Corporation has operations in ten plants in Pennsylvania, one plant
in Maryland, one plant in Delaware, and two plants in Guatemala. The Corporation
and its subsidiaries, in the normal course of business, purchase and sell goods
and services to related parties. See Note 6 of the note to the Consolidated
Financial Statements.

The Corporation's fiscal year ends at the close of operations on the Sunday
nearest to May 31. Accordingly, the following discussion compares the results of
operations for the fiscal year ended June 3, 2001 to the year ended May 28,
2000, and the fiscal year ended May 28, 2000 to the year ended May 30, 1999. The
fiscal year ended June 3, 2001 was comprised of 53 weeks. The fiscal year ended
May 28, 2000 and May 30, 1999, were comprised of 52 weeks.

YEAR ENDED JUNE 3, 2001 RESULTS OF OPERATIONS COMPARED TO YEAR ENDED MAY 28,
2000

NET SALES

Consolidated net sales were $318.2 million for fiscal 2001 compared to $300.3
million for fiscal 2000, an increase of $17.9 million, or 6.0%. The increase in
consolidated net sales was comprised of the following volume and sales price
components:

<TABLE>
<CAPTION>
                           VOLUME    SALES PRICE    COMBINED
<S>                        <C>       <C>            <C>
Frozen Foods                1.4%          .2%         1.6%
Canned Foods               (1.3)%         .5%         (.8)%
Prepared/Snack Foods        6.9%        (1.7)%        5.2%
                            ---          ---          ---
                            7.0%        (1.0)%        6.0%
                            ===          ===          ===
</TABLE>

The increased volume in frozen sales was principally due to an increase in sales
of frozen mushrooms to industrial customers. This increase in volume was
partially offset by a decrease in branded retail frozen sales. Frozen foods
prices have remained relatively consistent with last fiscal year.

The decreased volume in canned sales was principally due to lower private label
sales levels. Canned prices have remained consistent with last fiscal year.

Prepared and snack foods showed an increase in sales attributed to sales of York
Foods, Inc., York Snacks, Inc. and Bon Ton Foods, Inc. acquired in January 2000.
The decreased sales prices in prepared foods were principally due to a change in
the mix of product toward private label sales verses branded products.
<PAGE>   2
COST OF GOODS SOLD

Consolidated cost of goods sold represents 76.4% of consolidated net sales for
fiscal 2001 compared to 75.0% for fiscal 2000. The consolidated cost of sales
increased $17.7 million to $243.0 million in fiscal 2001 compared to $225.3
million for fiscal 2000. The addition of York Foods, Inc., York Snacks, Inc.,
and Bon Ton Foods, Inc. in January 2000 accounted for $13.6 million of the
dollar increase. Increases in energy, employee health benefits, frozen storage
and wages accounted for the remaining dollars and also the increase in cost of
goods sold as a percentage of net sales for the current fiscal year.

SELLING EXPENSES

Consolidated selling expenses represented 15.5% of consolidated net sales for
fiscal 2001 and 14.8% for fiscal 2000. Promotion expense increased $3.1 million
to $33.5 million for fiscal year 2001 as compared to $30.4 million for fiscal
2000 as the corporation spent additional promotion dollars to maintain market
share in frozen brands and to launch a new retail frozen product line during the
second quarter of the current fiscal year.

In addition to promotion expense, the Corporation spent $1,040,000 on
advertising, including $257,000 relating to coupons for fiscal 2001, compared to
$703,000 in advertising, including $52,000 for coupons for fiscal 2000.

The Corporation also spent an additional $2.1 million in selling expenses due to
the acquisition of York Foods, Inc., York Snacks, Inc. and Bon Ton Foods, Inc.
in January 2000.

Management intends to continue to direct promotional dollars to gain additional
market share and increased distribution of its brands. Management is constantly
reviewing the effectiveness of its retail promotional programs in an effort to
increase profitable sales.

ADMINISTRATIVE EXPENSES

Consolidated administrative expenses were $13.3 million for fiscal year 2001 or
4.2% of consolidated net sales, as compared to $13.2 million, or 4.4% of
consolidated net sales in 2000. The consolidation of administration functions
among all divisions and reduced corporate bonuses contributed to the decrease in
these expenses as a percentage of sales.

INTEREST EXPENSE

Consolidated interest expenses for fiscal 2001 increased $.6 million to $4.6
million compared to $4.0 million in fiscal 2000. The increase was due to
additional borrowing during the period to cover inventory increases and plant
acquisitions.

OTHER INCOME (EXPENSE)

Consolidated other income increased $749,000 to $1.1 million for fiscal 2001 as
compared to other income of $385,000 for fiscal 2000. Decreased foreign exchange
losses accounted for $255,000 of the increase and increased gains on the sales
of investments accounted for $474,000 of the increase.

INCOME TAXES

The provision for corporate federal and state income tax for fiscal year 2001
was $2.5 million or 27.3% of pretax earnings, as compared to $5.0 million or
36.8% of pretax earnings for 2000. The decrease in the effective rate was
primarily due to increased earnings, that were not subject to income taxes, in
foreign jurisdictions during the current fiscal year as compared to the prior
fiscal year.
<PAGE>   3
NET EARNINGS

Consolidated net earnings for fiscal year 2001 were $6.6 million, or 2.1% of
consolidated net sales as compared to $8.6 million or 2.9% of consolidated net
sales for fiscal 2000 as a result of the factors discussed above.

YEAR ENDED MAY 28, 2000 RESULTS OF OPERATIONS COMPARED TO YEAR ENDED MAY 30,
1999

NET SALES

Consolidated net sales were $300.3 million for fiscal 2000 compared to $287.2
million for fiscal 1999, an increase of $13.1 million, or 4.6%. The increase in
consolidated net sales was comprised of the following volume and sales price
components:

<TABLE>
<CAPTION>
                           VOLUME      SALES PRICE   COMBINED
<S>                        <C>         <C>           <C>
Frozen Foods                 2.2%         (2.2)%         --
Canned Foods                 2.2%         (1.5)%         .7%
Prepared/Snack Foods         6.5%         (2.6)%        3.9%
                            ----          ----         ----
                            10.9%         (6.3)%        4.6%
                            ====          ====         ====
</TABLE>

The increased volume in frozen sales was principally due to higher sales levels
in the Branded Retail Frozen due to the concentration on selling our premium
frozen brands. The increase in volume was partially offset by a decrease in
industrial sales. The decreased sales prices in frozen sales were principally
due to lower prices on Food Service and Private Label commodity frozen products
due to competitive market conditions.

The increased volume in canned sales was principally due to higher private label
sales levels. The increase in volume was partially offset by a decrease in
government bid sales. The decreased sales prices in canned sales was principally
due to lower prices on Food Service and Private Label tomato products due to
competitive market conditions.

Prepared foods and snacks showed an increase in sales attributable to sales of
Bickel's Potato Chip Co., (Bickel's) acquired in October 1998 and sales from
York Foods, Inc., York Snacks, Inc., and Bon Ton Foods, Inc. acquired in January
2000. The increased volume was partially offset by a decrease in other prepared
foods due to the reduction in sales to a major restaurant chain. The decreased
sales prices in prepared foods and snacks were principally due to a change in
the mix of goods sold.

COST OF GOODS SOLD

Consolidated cost of goods sold represents 75.0% of consolidated net sales for
fiscal 2000 compared to 74.8% for fiscal 1999. The consolidated cost of sales
increased $10.4 million to $225.3 million in fiscal 2000 as compared to $214.9
million in fiscal 1999. The addition of York Foods, Inc., York Snacks Inc., and
Bon Ton Foods, Inc. in January 2000 accounted for the dollar increase. The
increase in cost of goods sold as a percentage of net sales for the 2000 fiscal
year resulted primarily from the impact of the planned reduction in frozen
commodity production to balance inventories and start-up costs on a new
industrial frozen account.

SELLING EXPENSES

Consolidated selling expenses represented 14.8% of consolidated net sales for
fiscal 2000 and 14.7% for fiscal 1999. Promotion expenses increased $1.1 million
to $30.4 million for fiscal year 2000 as compared to $29.3 million for fiscal
1999 as the corporation spent additional promotion dollars to increase market
share in its premium frozen brands this fiscal year.

In addition to promotion expense, the Corporation spent $703,000 on advertising,
including $52,000 relating to coupons for fiscal 2000, compared to $1.9 million
in advertising, including $1.2 million for coupons for fiscal 1999.
<PAGE>   4
ADMINISTRATIVE EXPENSES

Consolidated administrative expenses were $13.2 million to fiscal 2000 or 4.4%
of consolidated net sales, as compared to $12.6 million, or 4.4% of consolidated
net sales in 1999. The increase in dollars was primarily attributed to
discretionary bonuses granted in December 1999 and additional expenses due to
the acquisition of York Foods, Inc., York Snacks, Inc., and Bon Ton Foods, Inc.
in January 2000.

INTEREST EXPENSE

Consolidated interest expenses for fiscal 2000 increased $1.0 million to $4.0
million compared to $3.0 million in fiscal 1999. The increase is due to
additional borrowings during the period to cover inventory increases and
acquisitions, as well as higher average borrowing rates for the current fiscal
year.

OTHER INCOME (EXPENSE)

Consolidated other income decreased $459,000 to $385,000 for fiscal 2000 as
compared to other income of $844,000 for fiscal 1999. Increased foreign exchange
loss accounted for $328,000 of the decrease, while reduced gains on the sales of
fixed assets accounted for $187,000 of this decrease.

INCOME TAXES

The provision for corporate federal and state income tax for fiscal year 2000
was $5.0 million or 36.8% of pretax earnings, as compared to $5.9 million or
38.2% of pretax earnings for 1999. The decrease in the effective rate was
primarily due to increased earnings that were not subject to income taxes, in
foreign jurisdictions during the current fiscal year as compared to the prior
fiscal year.

NET EARNINGS

Consolidated net earnings for fiscal year 2000 were $8.6 million, or 2.9% of
consolidated net sales as compared to $9.5 million or 3.3% of consolidated net
sales for fiscal 1999 as a result of the factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

The discussion and analysis of the Corporation's liquidity and capital resources
should be read in conjunction with the Consolidated Statements of Cash Flows,
contained elsewhere herein.

Net working capital was $6.8 million at June 3, 2001 and $7.6 million at May 28,
2000. The current ratio was 1.08 on June 3, 2001 and May 28, 2000.

Net cash provided by operations for the fiscal year ended June 3, 2001 was $10.8
million, compared to $11.6 million, for the fiscal year ended May 28, 2000.
Sources of net cash provided by operations consisted principally of net earnings
of $6.7 million and non-cash depreciation and amortization expense of $8.6
million. The use of net cash for operations consisted primarily of increased
inventory of $2.1 million and decreased accounts payable and accrued expenses of
$2.3 million.

Net cash provided by operations for the fiscal year ended May 28, 2000 was $11.6
million, compared to $5.3 million for the fiscal year ended May 30, 1999.
Sources of net cash provided by operations consisted principally of net earnings
of $8.6 million and non-cash depreciation and amortization expense of $7.7
million. The use of net cash for operations consisted primarily of increased
inventory of $4.3 million.

Net cash used by investing activities for the fiscal year ended June 3, 2001 was
$13.2 million as compared to $16.8 million for the fiscal year ended May 28,
2000. The principal use of funds was the upgrade and acquisition of property,
plant and equipment. During the year ended June 3, 2001, $13.6 million was spent
on development and modernization of equipment as compared to $14.2 million in
the fiscal year ended May 28, 2000. These projects were funded by internally
generated funds and short-term debt, the Corporation also used operating leases
to meet other equipment
<PAGE>   5
needs. The lease expense for the fiscal year ended June 3, 2001 was $3.3
million, an increase of $560,000 from the fiscal year ended May 28, 2000.

Net cash used by investing activities for the fiscal year ended May 28, 2000 was
$16.8 million as compared to $22.3 million for the fiscal year ended May 30,
1999. The principal use of funds was the upgrade and acquisition of property,
plant, equipment and the purchase of businesses. During the period ended May 28,
2000, $14.2 million was spent on development and modernization of equipment as
compared to $14.7 million in the fiscal year ended May 30, 1999. During the year
ended May 28, 2000, $4.5 million was spent for the acquisition of other
businesses. These projects were funded by internally generated funds and short
term debt. The Corporation also uses operating leases to meet other equipment
needs. The lease expense for the fiscal year ended May 28, 2000 was $2.7
million, down $848,000 from the fiscal year ended May 30, 1999.

Net cash used by financing activities was $2.8 million for the fiscal year ended
June 3, 2001, compared to cash provided by financing activities of $9.9 million
for the fiscal year ended May 28, 2000. Seasonal borrowings amounting $357.5
million were used throughout the fiscal year to fund operating needs. Seasonal
borrowing decreased $52,000 as of June 3, 2001 compared to May 28, 2000.
Payments on long-term debt were $1.8 million. The weighted average cost of
seasonal borrowing was 6.53% for the fiscal year ended June 3, 2001 compared to
7.02% for the fiscal year ended May 28, 2000.

Net cash from financing activities was $9.9 million for the fiscal year ended
May 28, 2000, compared to $16.9 million for the fiscal year ended May 30, 1999.
Seasonal borrowing amounting to $321.4 million was used throughout the fiscal
year to fund operating needs. Seasonal borrowing increased by $12.8 million as
of May 28, 2000 compared to May 30, 1999. Payments on long-term debt were $1.9
million. Management continues to monitor and evaluate the most cost effective
means to finance its operations. The weighted average cost of seasonal borrowing
was 7.02% for the fiscal year ended May 28, 2000 compared to 5.35% for the
fiscal year ended May 30, 1999.

At June 3, 2001, the Company has commitments from financial institutions to
provide seasonal lines of credit in the amount of $89 million. Additional
borrowing is permitted within prescribed parameters in existing debt agreements,
which contain certain performance covenants. At June 3, 2001, the Company was in
compliance with all the provisions of its debt agreements as waived.

The Company paid dividends of $866,000 during fiscal 2001 compared to $908,000
in fiscal 2000. In addition, the Company repurchased 184 shares of Class A and
Class B Common Stock at a cost of $14,000 during the year ended June 3, 2001 and
repurchased 1,290 shares of Class A and Class B Common Stock at a cost of
$58,000 during the year ended May 28, 2000.

The Company believes that it has sufficient working capital and availability
from seasonal lines of credit to meet its cash flow needs.

MARKET RISKS

The Company is subject to market risk associated with changes in interest rates.
To manage the risk of fluctuations in interest rates, the Company's borrowings
are a mix of fixed and floating rate obligations. This includes the $10.7
million of unsecured senior notes payable that bear interest at an 8.74% fixed
rate and are due in 2007. The Company also maintains short-term unsecured lines
of credit that bear interest at floating rates.


The following table presents the expected maturity and effective interest rates
of the Company's debt obligations (dollars in thousands):
<PAGE>   6
<TABLE>
<CAPTION>
                                 2002            2003           2004           2005           2006       THEREAFTER
<S>                            <C>             <C>            <C>            <C>            <C>          <C>
FIXED RATE
Unsecured senior notes         $ 1,786         $ 1,786        $ 1,786        $ 1,786        $ 1,786        $ 1,784
Effective interest rate           8.74%           8.74%          8.74%          8.74%          8.74%          8.74%
VARIABLE RATE
Lines of credit                $52,328              --             --             --             --             --
Effective interest rate           4.89%             --             --             --             --             --
</TABLE>

IMPACT OF EVENTS AND COMMITMENTS OF FUTURE OPERATIONS

COMPETITION IN THE MARKETPLACE

The Company faced stiff competition from national and regional branded companies
during the entire fiscal year 2001 in all of its market areas and management
anticipates this competitive environment to continue throughout fiscal year
2002.

NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement establishes comprehensive
accounting and reporting standards for derivative instruments and hedging
activities that require a company to record the derivative instruments at fair
value in the balance sheet. Furthermore, the derivative instrument must meet
specific criteria or the change in its fair value is to be recognized in
earnings in the period of change. To achieve hedge accounting treatment the
derivative instrument needs to be part of a well-documented hedging strategy
that describes the exposure to be hedged, the objective of the hedge and a
measurable definition of its effectiveness in hedging the exposure. This
Statement is effective as of the beginning of the first quarter of the fiscal
year beginning after June 15, 2000. Adoption of this Statement is not expected
to have a material effect on the Company's financial statements, as the Company
currently does not enter into any derivative instruments or hedging activities.

In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
completed after June 30, 2001 and specifies criteria for the recognition and
reporting of intangible assets apart from goodwill. Statement 142 will require
that goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of Statement 142. Statement 142 will also require that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment. Because of the extensive effort needed to accumulate the information
required to comply with Statements 141 and 142, the Company has not yet
determined the impact of adopting these statements on the Company's financial
statements.

During May 2000, the Emerging Issues Task Force (EITF) of the FASB released EITF
Issue No. 00-14, Accounting for Certain Sales Incentives, which specifies
accounting requirements for certain sales incentives a company provides to
customers and during September 2000, EITF released Issue No. 00-25, Vendor
Income Statement Characterization of Consideration from a vendor to a retailer,
which specifies accounting requirements for certain consideration from a vendor
to an entity that resells the vendor's products. The Company is required to
implement the requirements of these pronouncements in the fourth fiscal quarter
of 2002. If these pronouncements had been implemented for the year ended June 3,
2001, there would have been a decrease in selling expenses of $24.6 million and
a corresponding decrease in net sales.

IMPACT OF INFLATION AND CHANGING PRICES

The changes in cost and prices within the Company's business due to inflation
were not significantly different from inflation in the United States economy as
a whole. Levels of capital investment, pricing and inventory investment were not
materially affected by the moderate inflation.
<PAGE>   7
  FINANCIAL HIGHLIGHTS FIVE YEAR (IN THOUSANDS EXCEPT SHARE AND PRE-SHARE DATA)

<TABLE>
<CAPTION>
                                              JUNE 3,         MAY 28,         MAY 30,         MAY 31,         JUNE 1,
                                               2001            2000            1999            1998            1997
<S>                                          <C>             <C>             <C>             <C>             <C>
Net Sales                                    $318,246        $300,265        $287,237        $260,621        $259,439
Earnings before income taxes                 $  9,158        $ 13,648        $ 15,443        $ 13,804        $ 10,987
Net Earnings                                 $  6,661        $  8,619        $  9,539        $  8,437        $  6,706
Net Earnings per common share-basic          $   9.26        $  11.99        $  13.24        $  11.69        $   9.26
Net Earnings per common share-diluted        $   9.15        $  11.82        $  13.03        $  11.62        $   9.22
Basic Weighted-average shares                 714,565         715,249         716,974         718,712         720,811
Diluted weighted-average shares               728,235         729,389         731,895         726,101         727,415
Common shares outstanding-year end            714,496         714,670         715,888         717,626         719,731
Preferred shares outstanding-year end          24,724          24,764          25,044          25,044          15,044
Working Capital                              $  6,826        $  7,566        $ 10,841        $ 16,799        $ 17,122
Property, plant and equipment-net            $ 78,837        $ 73,484        $ 65,992        $ 54,280        $ 49,722
Long-term debt                               $  8,940        $ 10,741        $ 12,500        $ 14,359        $ 16,219
Stockholders' equity                         $ 77,465        $ 72,312        $ 64,454        $ 55,470        $ 47,157
Total assets                                 $180,728        $179,512        $157,241        $131,007        $124,031
Dividend per common share                    $   1.10        $   1.21        $  1.265        $   1.10        $   1.10
</TABLE>
<PAGE>   8
                          INDEPENDENT AUDITORS' REPORT



Board of Directors and Stockholders
Hanover Foods Corporation:

We have audited the accompanying consolidated balance sheets of Hanover Foods
Corporation and subsidiaries as of June 3, 2001 and May 28, 2000, and the
related consolidated statements of earnings, comprehensive income, cash flows,
and stockholders' equity for each of the years in the three-year period ended
June 3, 2001. These consolidated financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hanover Foods
Corporation and subsidiaries as of June 3, 2001 and May 28, 2000 and the results
of their operations and their cash flows for each of the years in the three-year
period ended June 3, 2001, in conformity with accounting principles generally
accepted in the United States of America.




/s/KPMG LLP
Harrisburg, Pennsylvania
July 13, 2001
<PAGE>   9
                       Consolidated Statements of Earnings
            Years ended June 3, 2001, May 28, 2000, and May 30, 1999

<TABLE>
<CAPTION>
                                             YEAR ENDED          YEAR ENDED          YEAR ENDED
                                            JUNE 3, 2001        MAY 28, 2000        MAY 30, 1999
<S>                                        <C>                 <C>                 <C>
Net sales                                  $ 318,246,000       $ 300,265,000       $ 287,237,000
Cost of goods sold                           242,989,000         225,294,000         214,943,000
                                           -------------       -------------       -------------

         Gross profit                         75,257,000          74,971,000          72,294,000

Selling expenses                              49,346,000          44,438,000          42,091,000
Administrative expenses                       13,259,000          13,232,000          12,583,000
                                           -------------       -------------       -------------

         Operating profit                     12,652,000          17,301,000          17,620,000

Interest expense                               4,628,000           4,038,000           3,021,000
Other income - net                            (1,134,000)           (385,000)           (844,000)
                                           -------------       -------------       -------------

         Earnings before income taxes          9,158,000          13,648,000          15,443,000
Income taxes                                   2,497,000           5,029,000           5,904,000
                                           -------------       -------------       -------------

         Net earnings                          6,661,000           8,619,000           9,539,000
Dividends on preferred stock                      41,000              43,000              44,000
                                           -------------       -------------       -------------

         Net earnings applicable to
           common stock                    $   6,620,000       $   8,576,000       $   9,495,000
                                           =============       =============       =============

Basic earnings per common share            $        9.26       $       11.99       $       13.24
                                           =============       =============       =============

Diluted earnings per common share          $        9.15       $       11.82       $       13.03
                                           =============       =============       =============
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>   10
                          Consolidated Balance Sheets

                           June 3, 2001, May 28, 2000

<TABLE>
<CAPTION>
                                                                     JUNE 3,           MAY 28,
  ASSETS                                                              2001              2000
<S>                                                               <C>               <C>
Current assets:
  Cash and cash equivalents                                       $  1,824,000      $  6,978,000
  Accounts and notes receivable - net                               27,411,000        28,382,000
  Accounts receivable from related parties - net                       115,000           129,000
  Inventories:
    Finished goods                                                  44,387,000        44,777,000
    Raw materials and supplies                                      16,907,000        14,415,000
  Prepaid expenses                                                   1,930,000         1,563,000
  Deferred income taxes                                                917,000           812,000
                                                                  ------------      ------------

         Total current assets                                       93,491,000        97,056,000
                                                                  ------------      ------------

Property, plant, and equipment - at cost:
  Land and buildings                                                52,140,000        47,438,000
  Machinery and equipment                                          114,649,000       106,691,000
  Leasehold improvements                                               535,000           531,000
                                                                  ------------      ------------


                                                                   167,324,000       154,660,000
Less accumulated depreciation and amortization                      92,924,000        84,697,000
                                                                  ------------      ------------

                                                                    74,400,000        69,963,000

Construction in progress                                             4,437,000         3,521,000
                                                                  ------------      ------------

                                                                    78,837,000        73,484,000
                                                                  ------------      ------------

Other assets:
Intangible assets - less accumulated amortization of
  $2,887,000 and $2,609,000                                          3,735,000         4,130,000
   Other Assets                                                      4,665,000         4,959,000
                                                                  ------------      ------------

Total assets                                                      $180,728,000      $179,512,000
                                                                  ============      ============
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>   11
                     Consolidated Balance Sheets - continued

                           June 3, 2001, May 28, 2000

<TABLE>
<CAPTION>
                                                                   JUNE 3,             MAY 28,
                 LIABILITIES AND STOCKHOLDERS' EQUITY               2001                2000
<S>                                                             <C>                 <C>
Current liabilities:
  Accounts payable                                              $  24,062,000       $  26,533,000
  Notes payable - banks                                            52,328,000          52,380,000
  Accrued expenses                                                  7,835,000           7,696,000
  Current maturities of long-term debt                              1,801,000           1,821,000
  Income taxes payable                                                639,000           1,060,000
                                                                -------------       -------------

                                 Total current liabilities         86,665,000          89,490,000
                                                                -------------       -------------

Long-term debt, less current maturities                             8,940,000          10,741,000
Deferred income taxes                                               4,022,000           4,170,000
Other  liabilities                                                  3,636,000           2,799,000
                                                                -------------       -------------

                                 Total liabilities                103,263,000         107,200,000
                                                                -------------       -------------

Stockholders' equity:
  Series A and B 8-1/4% cumulative convertible preferred
    stock                                                             780,000             781,000
  Series C Cumulative Convertible Preferred Stock                     250,000             250,000
  Common stock, Class A - non-voting                                8,732,000           8,731,000
  Common stock, Class B - voting                                   15,889,000          12,328,000
  Capital paid in excess of par value                              15,254,000           2,148,000
  Retained earnings                                                61,273,000          55,478,000
  Treasury stock, at cost                                          (8,148,000)         (8,134,000)
  Employee Stock Trust                                            (16,667,000)                  0
  Accumulated other comprehensive income                              102,000             730,000
                                                                -------------       -------------

    Total stockholders' equity                                     77,465,000          72,312,000
                                                                -------------       -------------

Total liabilities and stockholders' equity                      $ 180,728,000       $ 179,512,000
                                                                =============       =============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.
<PAGE>   12
                 Consolidated Statements of Comprehensive Income

            Years ended June 3, 2001, May 28, 2000, and May 30, 1999

<TABLE>
<CAPTION>
                                                    YEAR ENDED        YEAR ENDED       YEAR ENDED
                                                   JUNE 3, 2001      MAY 28, 2000     MAY 30, 1999
<S>                                                <C>               <C>              <C>
Net earnings                                        $ 6,661,000       $ 8,619,000      $ 9,539,000
                                                    -----------       -----------      -----------
Other comprehensive income (loss)
  Unrealized gain (loss) on securities, net of
    reclassification adjustments (net of taxes         (577,000)          205,000          479,000
    of $88,000 in 2001)
  Minimum pension liability adjustment (net of
    taxes of $35,000 in 2001)                           (51,000)               --               --
                                                    -----------       -----------      -----------

         Other comprehensive income (loss)             (628,000)          205,000          479,000
                                                    -----------       -----------      -----------

Comprehensive income                                $ 6,033,000       $ 8,824,000      $10,018,000
                                                    ===========       ===========      ===========
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>   13
                      Consolidated Statements of Cash Flows
            Years ended June 3, 2001, May 28, 2000, and May 30, 1999

<TABLE>
<CAPTION>
                                                                      YEAR ENDED          YEAR ENDED          YEAR ENDED
                                                                     JUNE 3, 2001        MAY 28, 2000        MAY 30, 1999
<S>                                                                 <C>                 <C>                 <C>
Cash flows from operating activities:
  Net earnings                                                      $   6,661,000       $   8,619,000       $   9,539,000
  Adjustments to reconcile net earnings to net cash
    provided by operating activities:
      Depreciation and amortization                                     8,552,000           7,677,000           6,366,000
      Gain on sale of property, plant, and equipment                      (12,000)            (92,000)           (279,000)
      Gain on sale of investments                                        (616,000)           (142,000)           (418,000)
      Deferred income taxes                                              (253,000)            (56,000)           (907,000)
      Change in assets and liabilities:
        Accounts and notes receivable                                    (985,000)           (910,000)           (668,000)
        Inventories                                                    (2,102,000)         (4,336,000)         (8,763,000)
        Prepaid expenses and other assets                                (520,000)            123,000             736,000
        Accounts payable and accrued expenses                          (2,332,000)          1,128,000          (1,450,000)
        Income taxes payable                                             (421,000)         (1,043,000)            605,000
        Other liabilities                                                 837,000             680,000             554,000
                                                                    -------------       -------------       -------------

        Net cash provided by operating activities                      10,779,000          11,648,000           5,315,000
                                                                    -------------       -------------       -------------

Cash flows from investing activities:
  Purchases of businesses, net of cash acquired                                --          (4,524,000)         (7,833,000)
  Purchase of investments                                              (1,553,000)         (1,002,000)         (2,201,000)
  Sale of investments                                                   1,988,000             810,000           1,877,000
  Acquisitions of property, plant, and equipment                      (13,645,000)        (14,202,000)        (14,697,000)
  Proceeds from dispositions of property, plant, and equipment             30,000           2,123,000             554,000
                                                                    -------------       -------------       -------------

        Net cash used in investing activities                         (13,180,000)        (16,795,000)        (22,300,000)
                                                                    -------------       -------------       -------------

Cash flows from financing activities:
  Proceeds from notes payable                                         357,545,000         321,358,000         249,269,000
  Payment on notes payable                                           (357,597,000)       (308,607,000)       (229,514,000)
  Payment on long-term debt                                            (1,821,000)         (1,874,000)         (1,859,000)
  Payment of dividends                                                 (8,666,000)           (908,000)           (951,000)
  Common stock redemptions                                                (14,000)            (58,000)            (83,000)
  Preferred stock issuance                                                     --                  --                  --
                                                                    -------------       -------------       -------------
        Net cash provided by (used in) financing activities            (2,753,000)          9,911,000          16,862,000
                                                                    -------------       -------------       -------------

Net increase (decrease) in cash and cash equivalents                   (5,154,000)          4,764,000            (123,000)

Cash and cash equivalents, beginning of year                            6,978,000           2,214,000           2,337,000
                                                                    -------------       -------------       -------------

Cash and cash equivalents, end of year                              $   1,824,000       $   6,978,000       $   2,214,000
                                                                    =============       =============       =============
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>   14
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES

                    Consolidated Statements of Stockholders' Equity

            Years ended June 3, 2001, May 28, 2000, and May 30, 1999


<TABLE>
<CAPTION>
                                                    CUMULATIVE
                                                    CONVERTIBLE                  CUMULATIVE
                                                     PREFERRED                   CONVERTIBLE
                                                       STOCK                      PREFERRED                COMMON
                                       TOTAL         SERIES A                      STOCK                   STOCK
                                   STOCKHOLDERS'       AND B                      SERIES C                 CLASS A
                                      EQUITY           SHARES         AMOUNT       SHARES        AMOUNT    SHARES        AMOUNT
                                      ------           ------         ------       ------        ------    ------        ------
<S>                                <C>              <C>          <C>             <C>           <C>       <C>         <C>
 Balance, May 31, 1998             $ 55,470,000        31,536    $    788,000       10,000     $ 250,000   349,210   $  8,729,000
                                   ------------        ------    ------------       ------     ---------   -------   ------------

Net earnings                          9,539,000          --              --           --            --        --             --
Cash dividends per share:
    Preferred - $2.0625 annually        (44,000)         --              --           --            --        --             --
    Common - $1.2650 annually          (907,000)         --              --           --            --        --             --
Redemption of common stock -
    Class A 1,446 shares,
       Class B 292 shares               (83,000)         --              --           --            --        --             --
Other comprehensive income              479,000          --              --           --            --        --             --
                                   ------------        ------    ------------       ------     ---------   -------   ------------
Balance, May 30, 1999              $ 64,454,000        31,536    $    788,000       10,000     $ 250,000   349,210   $  8,729,000
                                   ============        ======    ============       ======     =========   =======   ============

Net earnings                          8,619,000          --              --           --            --        --             --
Cash dividends per share:
    Preferred - $2.0625 annually        (43,000)         --              --           --            --        --             --
    Common - $1.21 annually            (865,000)         --              --           --            --        --             --
Redemption of common stock -
    Class A 1,066 shares,
       Class B 224 shares               (58,000)         --              --           --            --        --             --
    Stock Conversion                       --            (280)         (7,000)        --            --          72          2,000
Other comprehensive income              205,000          --              --           --            --        --             --
                                   ------------        ------    ------------       ------     ---------   -------   ------------
Balance, May 28, 2000              $ 72,312,000        31,256    $    781,000       10,000     $ 250,000   349,282   $  8,731,000
                                   ============        ======    ============       ======     =========   =======   ============

Net earnings                          6,661,000          --              --           --            --        --             --
Cash dividends per share:
    Preferred - $2.0625 annually        (41,000)         --              --           --            --        --             --
    Common - $1.10 annually            (825,000)         --              --           --            --        --             --
Issuance of Preferred Stock
Issuance of common stock to
    Employee Stock Trust
    Class B 142,449 shares                 --            --              --           --            --        --             --
Redemption of common stock -
    Class A 183 shares,
       Class B 1 shares                 (14,000)         --              --           --            --        --             --
    Stock Conversion                       --             (40)         (1,000)        --            --          10          1,000
Other comprehensive loss               (628,000)         --              --           --            --        --             --
                                   ------------        ------    ------------       ------     ---------   -------   ------------
Balance, June 3, 2001              $ 77,465,000        31,216    $    780,000       10,000     $ 250,000   349,292   $  8,732,000
                                   ============        ======    ============       ======     =========   =======   ============
</TABLE>


<TABLE>
<CAPTION>



                                    COMMON
                                     STOCK                   CAPITAL PAID                 TREASURY
                                    CLASS B                   IN EXCESS OF      RETAINED   STOCK
                                    SHARES      AMOUNT         PAR VALUE        EARNINGS   SHARES         AMOUNT
                                    ------      ------         ---------        --------   ------         ------
<S>                                <C>       <C>            <C>            <C>           <C>         <C>
 Balance, May 31, 1998             493,123   $ 12,328,000      2,143,000         39,179    141,199   $ (7,993,000)
                                   -------   ------------   ------------   ------------    -------   ------------

Net earnings                          --             --             --        9,539,000       --             --
Cash dividends per share:
    Preferred - $2.0625 annually      --             --             --          (44,000)      --             --
    Common - $1.2650 annually         --             --             --         (907,000)      --             --
Redemption of common stock -
    Class A 1,446 shares,
       Class B 292 shares             --             --             --             --        1,738        (83,000)
Other comprehensive income            --             --             --             --         --             --
                                   -------   ------------   ------------   ------------    -------   ------------
Balance, May 30, 1999              493,123   $ 12,328,000      2,143,000      8,627,179    142,937   $ (8,076,000)
                                   =======   ============   ============   ============    =======   ============

Net earnings                          --             --             --        8,619,000       --             --
Cash dividends per share:
    Preferred - $2.0625 annually      --             --             --          (43,000)      --             --
    Common - $1.21 annually           --             --             --         (865,000)      --             --
Redemption of common stock -
    Class A 1,066 shares,
       Class B 224 shares             --             --             --             --        1,290        (58,000)
    Stock Conversion                  --             --            5,000           --         --             --
Other comprehensive income            --             --             --             --         --             --
                                   -------   ------------   ------------   ------------    -------   ------------
Balance, May 28, 2000              493,123   $ 12,328,000      2,148,000     55,478,000    144,227   $ (8,134,000)
                                   =======   ============   ============   ============    =======   ============

Net earnings                          --             --             --        6,661,000       --             --
Cash dividends per share:
    Preferred - $2.0625 annually      --             --             --          (41,000)      --             --
    Common - $1.10 annually           --             --             --         (825,000)      --             --
Issuance of Preferred Stock
Issuance of common stock to
    Employee Stock Trust
    Class B 142,449 shares         142,449      3,561,000     13,106,000           --         --             --
Redemption of common stock -
    Class A 183 shares,
       Class B 1 shares               --             --             --             --          184        (14,000)
    Stock Conversion                  --             --             --             --         --             --
Other comprehensive loss              --             --             --             --         --             --
                                   -------   ------------   ------------   ------------    -------   ------------
Balance, June 3, 2001              635,572   $ 15,889,000   $ 15,254,000   $ 61,273,000    144,411   $ (8,148,000)
                                   =======   ============   ============   ============    =======   ============
</TABLE>


<TABLE>
<CAPTION>



                                                               ACCUMULATED
                                                                  OTHER
                                    EMPLOYEE STOCK TRUST       COMPREHENSIVE
                                    SHARES        AMOUNT          INCOME
                                    ------        ------          ------
<S>                                <C>        <C>            <C>
 Balance, May 31, 1998                 --     $       --          46,000
                                    -------   ------------   -----------

Net earnings                           --             --            --
Cash dividends per share:
    Preferred - $2.0625 annually       --             --            --
    Common - $1.2650 annually          --             --            --
Redemption of common stock -
    Class A 1,446 shares,
       Class B 292 shares              --             --            --
Other comprehensive income             --             --         479,000
                                    -------   ------------   -----------
Balance, May 30, 1999                                            525,000
                                    =======   ============   ===========

Net earnings                           --             --            --
Cash dividends per share:
    Preferred - $2.0625 annually       --             --            --
    Common - $1.21 annually            --             --            --
Redemption of common stock -
    Class A 1,066 shares,
       Class B 224 shares              --             --            --
    Stock Conversion                   --             --            --
Other comprehensive income             --             --         205,000
                                    -------   ------------   -----------
Balance, May 28, 2000                                            730,000
                                    =======   ============   ===========

Net earnings                           --             --            --
Cash dividends per share:
    Preferred - $2.0625 annually       --             --            --
    Common - $1.10 annually            --             --            --
Issuance of Preferred Stock
Issuance of common stock to
    Employee Stock Trust
    Class B 142,449 shares          142,449    (16,667,000)         --
Redemption of common stock -
    Class A 183 shares,
       Class B 1 shares                --             --            --
    Stock Conversion                   --             --            --
Other comprehensive loss               --             --        (628,000)
                                    -------   ------------   -----------
Balance, June 3, 2001               142,449   $(16,667,000)  $   102,000
                                    =======   ============   ===========
</TABLE>


See accompanying notes to consolidated financial statement.


<PAGE>   15
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 3, 2001 AND MAY 28, 2000

(1)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      (a)   DESCRIPTION OF BUSINESS

            Hanover Foods Corporation (the Company) is a vertically integrated
            processor of food products in one industry segment. The Company is
            involved in the growing, processing, canning, freeze-drying,
            packaging, marketing, and distribution of its products under its own
            trademarks as well as other branded, customer, and private labels.
            The Company has operations in ten plants in Pennsylvania, one plant
            in Delaware, one plant in Maryland, two plants in Guatemala. The
            Company's raw materials are readily available and the Company is not
            dependent on a single supplier or a few suppliers. Revenue is
            recognized when products are shipped. Separately billed shipping and
            handling is included in net sales. Shipping and handling costs are
            included in cost of goods sold.

      (b)   PRINCIPLES OF CONSOLIDATION

            The accompanying consolidated financial statement include the
            accounts of Hanover Foods Corporation and its subsidiaries, which
            are Consumers Packing Company (T/A Hanover Foods - Lancaster
            Division), Spring Glen Fresh Foods, Inc., Bickel's Snack Foods,
            Inc., Hanover Insurance Company, LTD., The Nittany Corporation,
            Tri-lo Foods Corp. and its subsidiaries - Alimentos Congelados Monte
            Bellos, S.A. (Alcosa) and Sunwise Corporation all of which are
            wholly-owned. During the year ended May 28, 2000, the Company
            purchased certain assets and assumed certain liabilities of York
            Foods, Inc., Bickel's Snack Foods, Inc., York Snacks, Inc., and Bon
            Ton Foods, Inc. which are included as part of Hanover Foods. During
            the year ended May 31, 1998, the Company purchased L.K. Bowman, Inc.
            and L.K. Bowman Pacific, Inc., which are included as part of Hanover
            Foods, and purchased certain assets of Sunnyside Foods, which are
            included in Spring Glen Fresh Foods, Inc. All significant
            intercompany balances and transactions have been eliminated.

      (c)   CONCENTRATION OF CREDIT RISK

            Financial instruments that potentially subject the Company to credit
            risk consist of trade receivables. Wholesale and retail food
            distributors comprise a significant portion of the trade
            receivables; collateral is not required. The risk associated with
            the concentration is generally limited due to the large number of
            wholesalers and retailers and their geographic dispersion, however,
            the Company's ten largest customers accounted for approximately 33%,
            28% and 35% of the Company's net sales for the years ended June 3,
            2001, May 28, 2000 and May 30, 1999, respectively. The Company's ten
            largest customers account for approximately 21% and 22% of the
            Company's accounts receivable as of June 3, 2001 and May 28, 2000,
            respectively. No single customer accounted for more than 10% of net
            sales for the years ended June 3, 2001, May 28, 2000 and May 30,
            1999.
<PAGE>   16
      (d)   CASH AND CASH EQUIVALENTS

            Cash equivalents of $723,000 and $361,000 at June 3, 2001 and May
            28, 2000, respectively, consist of short-term interest-bearing
            investments with maturities of less than three months. For purposes
            of the statements of cash flows, the Company considers all highly
            liquid debt instruments with original maturities of three months or
            less to be cash equivalents.

      (e)   INVESTMENTS

            Investments of $3,775,000 and $4,207,000 at June 3, 2001 and May 28,
            2000, respectively, classified as available-for-sale securities, are
            included in other noncurrent assets and measured at fair value. Net
            unrealized gains and losses are reported as a separate component of
            accumulated other comprehensive income until realized. Net
            unrealized gains were $153,000, $730,000, and $525,000 at June 3,
            2001, May 28, 2000 and May 30, 1999, respectively.

            The reconciliation of the reclassification adjustments related to
            unrealized gains and losses on securities included in comprehensive
            income for the respective fiscal year are as follows:

<TABLE>
<CAPTION>
                                                           2001            2000            1999
                                                        ---------       ---------       ---------
<S>                                                    <C>             <C>             <C>
            Unrealized holding gains arising
            during Period                               $ (36,000)        347,000         897,000

            Reclassification adjustments for gains
            included in net income                       (541,000)       (142,000)       (418,000)
                                                        ---------       ---------       ---------
            Net unrealized gain (loss) on
            securities                                  $(577,000)        205,000         479,000
                                                        =========       =========       =========
</TABLE>

      (f)   FAIR VALUE OF FINANCIAL INSTRUMENTS

            The carrying value of cash and cash equivalents, accounts and notes
            receivable, accounts payable and notes payable approximates fair
            values due to the short-term maturities of these instruments.

            The fair values of each of the Company's long-term debt instruments
            are based on the amount of future cash flows associated with each
            instrument discounted using the Company's current borrowing rate for
            similar debt instruments of comparable maturity. The amount reported
            in the consolidated balance sheet for long-term debt approximates
            fair value.

      (g)   INVENTORIES

            Inventories are stated at the lower of cost (determined by average
            cost which approximates the first-in, first-out method) or market.
<PAGE>   17
      (h)   PROPERTY, PLANT, AND EQUIPMENT

            Property, plant, and equipment are stated at cost. Expenditures for
            maintenance and repairs are expensed as incurred; additions and
            betterments that materially increase the lives of the related assets
            are capitalized. Upon retirement, sale, or other disposition of
            buildings and equipment, cost and accumulated depreciation are
            eliminated from the accounts and gain or loss is included in
            operations.

            Depreciation on property, plant, and equipment is calculated on the
            straight-line method over the estimated useful lives of the assets.
            Estimated useful lives range from approximately 3 years to 12 years
            for equipment and up to 40 years for buildings. Accelerated methods
            are used for tax reporting purposes. Plant and equipment held under
            capital leases are amortized using the straight-line method over the
            shorter of the lease term or estimated useful life of the asset.


      (i)   INTANGIBLE ASSETS

            The Company amortizes intangible assets, primarily covenants not to
            compete, purchased trademarks and goodwill, over periods ranging
            from 3 to 40 years. The Company assesses the recoverability of
            intangible assets by determining whether the balances can be
            recovered through undiscounted future operating cash flows. The
            amount of impairment, if any, is measured based on projected
            discounted future operating cash flows using a discount rate
            reflecting the Company's average cost of funds. The assessment of
            the recoverability will be impacted if estimated future operating
            cash flows are not achieved.

      (j)   INSURANCE

            The Company, through its wholly-owned insurance subsidiary, is
            self-insured with respect to certain general liability and workers'
            compensation claims. Excess insurance coverage is maintained for
            general liability and workers' compensation claims.

            Outstanding claims include a provision for claims reported as
            advised to the Company by the primary insurer and a provision for
            incurred but not reported claims based upon the advice of the
            primary insurer on the ultimate liability of the Company under the
            reinsurance assumed or, in the absence of such an evaluation, the
            provision is based upon the best estimate of the ultimate liability
            of the Company.

      (k)   INCOME TAXES

            Income taxes are accounted for under the asset and liability method.
            Deferred tax assets and liabilities are recognized for the future
            tax consequences attributable to differences between the financial
            statement carrying amounts of existing assets and liabilities and
            their respective tax bases and operating loss and tax credit
            carryforwards. Deferred tax assets and liabilities are measured
            using enacted tax rates expected to apply to taxable income in the
            years in which those temporary differences are expected to be
            recovered or settled. The effect on deferred tax assets and
            liabilities of a change in tax rates is recognized in income in the
            period that includes the enactment date.
<PAGE>   18
      (l)   RESEARCH AND DEVELOPMENT

            Research and development costs are expensed as incurred. Research
            and development costs amounted to $633,000, $631,000, and $612,000,
            for the years ended June 3, 2001, May 28, 2000, and May 30, 1999,
            respectively.

      (m)   PROMOTIONAL COSTS

            Promotional costs are expensed as incurred. Accounts and notes
            receivable are presented net of allowances for bad debts and
            promotional programs.

      (n)   ADVERTISING COSTS

            Advertising costs are expensed as incurred. Advertising expenses
            amounted to $1,040,000, $703,000, and $1,897,000, for the years
            ended June 3, 2001, May 28, 2000, and May 30, 1999, respectively
            (including manufacturer coupon expense of $257,000, $52,000, and
            $1,235,000, respectively).

      (o)   EARNINGS PER SHARE

            Earnings per share are computed in accordance with Statement of
            Financial Accounting (SFAS) No. 128, Earnings per Share. Basic
            earnings per share excludes dilution and is computed by dividing
            income available to common stockholders by the weighted-average
            number of common shares outstanding for the period. Diluted earnings
            per share reflects the potential dilution that could occur if
            securities or other contracts to issue common stock were exercised
            or converted into common stock or resulted in the issuance of common
            stock that then shared in the earnings of the entity.

      (p)   FISCAL YEAR END

            The Company's fiscal year ends at the close of operations on the
            Sunday nearest to May 31. The fiscal year ended June 3, 2001 was
            comprised of 53 weeks. The fiscal years ended May 28, 2000 and May
            30, 1999, were comprised of 52 weeks.

      (q)   USE OF ESTIMATES

            Management of the Company has made a number of estimates and
            assumptions relating to the reporting of assets, liabilities,
            revenues and expenses, and the disclosure of contingent assets and
            liabilities to prepare these financial statements in conformity with
            generally accepted accounting principles. Actual results could
            differ from those estimates.

      (r)   NEW ACCOUNTING STANDARDS

            During May 2000, the Emerging Issues Task Force (EITF) of the FASB
            released EITF Issue No. 00-14, Accounting for Certain Sales
            Incentives, which specifies accounting requirements for certain
            sales incentives a company provides to customers and during
            September 2000, EITF released Issue No. 00-25, Vendor Income
            Statement Characterization of Consideration from a vendor to a
            retailer, which specifies accounting requirements for certain
            consideration from a vendor to an entity that resells the vendor's
            products. The Company is required to
<PAGE>   19
            implement the requirements of these pronouncements in the fourth
            fiscal quarter of 2002. If these pronouncements had been implemented
            for the year ended June 3, 2001, there would have been a decrease in
            selling expenses of $24.6 million and a corresponding decrease in
            net sales.

(2)   NOTES PAYABLE - BANKS

      The Company maintains short-term unsecured lines of credit with various
      banks providing credit availability amounting to $89,000,000, of which
      $52,328,000 was borrowed (including an overdraft of $4,128,000) at June 3,
      2001 and $52,380,000 was borrowed (including an overdraft of $1,671,000)
      at May 28, 2000. The Company borrows funds under these lines of credit
      under two methods of cost of funds. The first method used to price the
      cost of short-term borrowings is based upon LIBOR plus fifty to
      seventy-five basis points. The second method is based upon the financial
      institution's "calculated cost of funds" plus an earnings modification.
      The weighted-average interest rate on short-term borrowings at June 3,
      2001 and May 28, 2000, was 4.89% and 7.02%, respectively. The maximum
      amount of borrowings outstanding under short-term lines of credit at any
      one time during the years ended June 3, 2001, May 28, 2000, and May 30,
      1999 was approximately $53,393,000, $52,380,000 and $39,629,000.

(3)   LONG-TERM DEBT

      The long-term debt of the Company and its subsidiaries consists of:

<TABLE>
<CAPTION>
                                                   JUNE 3, 2001       MAY 28, 2000
                                                   ------------       ------------

<S>                                                <C>                <C>
8.74% unsecured senior notes payable to
   an insurance company, due through 2007           $10,714,000        $12,500,000



   Other                                                 27,000             62,000
                                                    -----------        -----------

Total long-term debt                                 10,741,000         12,562,000
Less current maturities                               1,801,000          1,821,000
                                                    -----------        -----------

Long-term debt, excluding current maturities        $ 8,940,000        $10,741,000
                                                    ===========        ===========
</TABLE>

The term loan agreements with the insurance company and seasonal borrowing with
financial institutions (note 2), contain various restrictive provisions
including those relating to mergers and acquisitions, additional borrowing,
guarantee of obligations, lease commitments, limitations to declare or pay
dividends, repurchase stock, and the maintenance of working capital and certain
financial ratios. Based on the requirements of the agreements at June 3, 2001,
$30,003,000 of retained earnings are restricted from distribution. The Company
is in compliance with the restrictive provisions in the agreements as amended or
waived as of June 3, 2001.
<PAGE>   20
      The aggregate long-term debt maturities follow:

<TABLE>
<CAPTION>
      FOR THE FISCAL YEAR ENDING:
<S>                                              <C>
           2002                                  $ 1,801,000
           2003                                    1,798,000
           2004                                    1,786,000
           2005                                    1,786,000
           2006                                    1,786,000
           Thereafter                              1,784,000
                                                 -----------

           Total                                 $10,741,000
                                                 ===========
</TABLE>

(4)   LEASES

      The Company has several noncancelable operating leases, primarily for
      equipment, that expire over the next three years. These leases generally
      contain renewal options for periods ranging from three to five years and
      require the Company to pay all executory costs such as maintenance and
      insurance. Rental expense for operating leases (except those with lease
      terms of a month or less that were not renewed) during the periods ended
      June 3, 2001, May 28, 2000 and May 30, 1999, amounted to $3,303,000,
      $2,743,000, and $3,591,000, respectively.

      Future minimum lease payments under noncancelable operating leases (with
      initial or remaining lease terms in excess of one year) as of June 3, 2001
      are:

<TABLE>
<CAPTION>
                                                  OPERATING
      FOR THE FISCAL YEAR ENDING:                   LEASES
                                                 -----------
<S>                                              <C>
           2002                                  $   722,000
           2003                                      397,000
           2004                                      298,000
           2005                                      157,000
           Thereafter                                 55,000
                                                 -----------

      Total minimum lease payments               $ 1,629,000
                                                 ===========
</TABLE>

(5)   CAPITAL STOCK

      The Company's capital stock consists of Class A Nonvoting Common Stock,
      Class B Voting Common Stock, 8 1/4% Series A and B Cumulative Convertible
      Preferred Stock, and Series C Convertible Preferred Stock. Holders of
      Class B Common Stock have one vote per share. No other classes of stock
      have voting rights except as discussed below.

      The Company's Amended and Restated Articles of Incorporation authorize the
      Board of Directors to issue up to 10,000 shares of Series C Convertible
      Preferred Stock to the trustees of the Company's 401(k) Savings Plan (or a
      similar employee benefit plan). At least a majority of the trustees of the
      Company's 401(k) Savings Plan (or similar employee benefit plan), who are
      appointed by the Board of Directors, must be "disinterested directors" of
      the Company. If certain Warehime family Class B shareholders cannot
      unanimously agree in writing on the composition of
<PAGE>   21
      the Board of Directors or on other important matters specified below, the
      Amended and Restated Articles permit each of the 10,000 shares of Series C
      Convertible Preferred Stock the right to cast 35 votes in the election of
      directors, and each share of Class A Common Stock would have one-tenth
      (1/10) of a vote per share, thereby enabling them to influence the
      ultimate result of the election by the Class B shareholders. The Amended
      and Restated Articles also permit the trustees and the Class A
      shareholders to similarly vote on proposals to remove directors, and in
      connection with any proposal (not previously approved by the Board of
      Directors) to further amend the Articles of Incorporation or By-Laws or to
      effectuate a merger, consolidation, division, or sale of substantially all
      of the assets of the Company. The voting power of the Series C Convertible
      Preferred Stock ceases five (5) years after its issuance in 1998. Under
      the Amended and Restated Articles, each of the shares of Series C
      Convertible Preferred Stock is convertible into one share of Class A
      Common Stock and is not entitled to vote except in the event that certain
      Warehime family Class B shareholders cannot agree in writing on the
      composition of the Board of Directors or on other important matters
      specified above.

      During the fiscal year, the Corporation established an Employee Stock
      Trust (the trust) to fund future stock related obligations of the
      Corporation's compensation and benefit plans, including a concurrently
      established Employee Stock Ownership Plan (ESOP). For financial reporting
      purposes, the Trust is consolidated with the Corporation. On March 1,
      2001, the Corporation contributed 142,449 shares of Class B Common Stock
      to the Trust. Upon contribution, these shares were recorded at a fair
      value of $117/per share based upon the most recent appraised value of
      Class B Common Stock as determined by an independent valuation. No shares
      were transferred from the Trust to the ESOP during the fiscal year ended
      June 3, 2001.

      The following summarizes the Company's capital stock at June 3, 2001 and
      May 28, 2000 :

<TABLE>
<CAPTION>
                                                  JUNE 3, 2001             MAY 28, 2000
                                              --------------------     --------------------
                                              ISSUED   OUTSTANDING     ISSUED   OUTSTANDING
                                              ------   -----------     ------   -----------
<S>                                          <C>       <C>            <C>       <C>
Series A  8 1/4% cumulative
  convertible preferred stock - $25
  Par value, 60,000 shares authorized         14,948         6,228     14,988         6,268

Series B  8 1/4% cumulative
  convertible preferred stock - $25
  Par value, 60,000 shares authorized         16,268         8,496     16,268         8,496

Series C 4.4% cumulative convertible
  preferred stock - $25 par value,
  10,000 shares authorized                    10,000        10,000     10,000        10,000

Class A nonvoting common stock  -
  $25 par value, 800,000 shares
  authorized                                 349,282       288,247    349,282       288,420

Class B voting common stock  -
  $25 par value, 880,000 shares
  authorized                                 635,572       426,249    493,123       426,250
</TABLE>
<PAGE>   22
      At any time, the holders of the Series A and B Cumulative Convertible
      Preferred Stock have the option to convert their shares to shares of Class
      A Nonvoting Common Stock based on the book value of the Class A Nonvoting
      Common Stock at the time of conversion. At June 3, 2001, the outstanding
      Series A and B Preferred Stock could be converted into 3,423 shares of
      Class A Common Stock.

(6)   RELATED PARTY TRANSACTIONS

      The Company and its subsidiaries, in the normal course of business,
      purchase and sell goods and services to related parties. Transactions with
      related parties are summarized below:

<TABLE>
<CAPTION>
                                          YEAR ENDED        YEAR ENDED        YEAR ENDED
                                            JUNE 3,           MAY 28,           MAY 30,
                                             2001              2000              1999
                                          ----------        ----------        ----------
<S>                                       <C>               <C>               <C>
Revenues:
  Park 100 Foods, Inc.                    $1,800,000        $2,391,000        $2,627,000

Corporate charges:
  Snyder's of Hanover, Inc.                       --           151,000           188,000

Expenditures:
  Lippy Brothers, Inc.                     1,284,000           675,000           956,000
  James G. Sturgill                           20,000            26,000            48,000
  ARWCO Corporation                           73,000            13,000            15,000
  Warehime Enterprises, Inc.                   4,000             4,000            78,000
  John A. and Patricia M. Warehime            67,000            65,000            58,000
  Park 100 Foods, Inc.                         9,000            54,000            85,000
  Schaier Travel                               8,000             7,000                --

Accounts receivable:
  Snyder's of Hanover, Inc.                       --            26,000            32,000
  Park 100 Foods, Inc.                       121,000            96,000           210,000
  Lippy Brothers, Inc.                            --             7,000                --

Accounts payable:

  Patricia M. Warehime                         5,000                --                --
  Schaier Travel                               1,000                --                --

Notes payable:
  Cyril T. Noel                                   --                --            74,000
</TABLE>

      Included in other assets is a related party receivable of $724,000 in 2001
      and $571,000 in 2000 related to two split interest life insurance
      contracts on the life of Patricia M. Warehime.

      In connection with the amended complaint filed by Michael A. Warehime
      versus John A. Warehime (note 10), pursuant to applicable state law, the
      Company has agreed to pay directly all expenses (including attorney's
      fees) and costs in advance of the final disposition of the litigation or
      any substantially similar or related action, suit, or proceeding. The
      Company has received an undertaking from John A. Warehime to repay all
      costs and expenses if it is ultimately determined
<PAGE>   23
      that he is not entitled to be indemnified by the Company. The amount paid
      and expensed by the Company under this arrangement for the years ended
      June 3, 2001, May 28, 2000 and May 30, 1999 was approximately $6,000,
      $57,000, and $72,000, respectively.

      On April 1, 1996, the Company entered into a stock purchase agreement with
      John R. Miller, Jr. to purchase 1,210 shares of the Company's Voting Class
      B Common Stock and 5,990 shares of the Company's Non-voting Class A Common
      Stock over a four-year period. The April 22, 1997 Voting Agreement
      provides that John R. Miller, Jr. will vote all shares of the Company
      Common Stock, which he is entitled to vote as directed by the Board of
      Directors, provided Clayton J. Rohrbach, Jr., Arthur S. Schaier, and Cyril
      T. Noel, or a majority of them, vote in favor of the matter to vote all
      shares of both classes of common stock beginning April 1, 1996 and ending
      March 31, 2001. At June 3, 2001, the Company has purchased 1,210 shares of
      the Company's Voting Class B Common Stock for approximately $88,000 and
      5,990 shares of the Company's Non-voting Class A Common Stock for
      approximately $252,000.

      A portion of rental expense included in note 4 was paid to ARWCO
      Corporation; Park 100 Foods, Inc. and Warehime Enterprises, Inc. all of
      which are related companies through common control. The amounts were
      $15,000, $100,000, and $169,000 for the years ended June 3, 2001, May 28,
      2000, and May 30, 1999, respectively.

(7)   BENEFIT PLANS

      (a)   DEFINED CONTRIBUTION PLAN

            The Company offers a 401(k) plan covering certain of its employees.
            The Company contributes an amount equal to 100% of each employee's
            deferral up to 5%. Effective July 25, 1997, the plan was amended to
            permit matching contributions to be made in cash and/or securities
            of the Company (see note 5). The Company's contribution to the
            401(k) plan for the periods ended June 3, 2001, May 28, 2000 and May
            30, 1999, was $538,000, $588,000, and $576,000, respectively.

      (b)   POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

            Certain employees receive postretirement benefits other than
            pensions. This plan is currently not funded. The Company accounts
            for these costs by accruing for them over the employee service
            period. The status of the plan, based on the most recent measurement
            dates, is as follows:
<PAGE>   24
<TABLE>
<CAPTION>
                                                                       JUNE 3,             MAY 28,
                                                                        2001                2000
                                                                    -----------         -----------
<S>                                                                 <C>                 <C>
Change in benefit obligation:
  Benefit obligation at beginning of year                           $(3,150,000)        $(3,648,000)
  Service cost                                                          (87,000)           (102,000)
  Interest cost                                                        (253,000)           (225,000)
  Amortization of transition obligation                                 (73,000)            (73,000)
  Plan assumptions                                                     (236,000)            215,000
  Change in plan                                                             --             545,000
  Benefits paid                                                         174,000             138,000
  Other                                                                (134,000)                 --
                                                                    -----------         -----------
        Benefit obligation at end of year                            (3,759,000)         (3,150,000)
                                                                    -----------         -----------
Change in plan assets
  Fair value of plan assets at beginning of year                             --                  --
  Contributions                                                         174,000             138,000
  Benefits paid                                                        (174,000)           (138,000)
                                                                    -----------         -----------
        Fair value of plan assets at end of year                             --                  --
                                                                    -----------         -----------

Funded status:
  Unrecognized net (gain) loss                                          459,000            (114,000)
  Unrecognized prior service cost                                       795,000             855,000
  Unrecognized transition liability, amortized over 20 years            934,000           1,007,000
                                                                    -----------         -----------
  Accrued postretirement benefit cost                               $(1,571,000)        $(1,402,000)
                                                                    ===========         ===========
</TABLE>

            A discount rate of 7.25% and 7.75% for June 3, 2001 and May 28,
            2000, respectively, was used in determining the actuarial present
            value of the accumulated postretirement benefit obligation.

            The cost of postretirement benefits other than pensions consisted of
            the following components:

<TABLE>
<CAPTION>
                                            YEAR ENDED      YEAR ENDED      YEAR ENDED
                                             JUNE 3,         MAY 28,         MAY 30,
                                               2001            2000            1999
                                             --------        --------        --------
<S>                                         <C>             <C>             <C>
Service cost                                 $ 87,000        $102,000        $117,000
Interest cost                                 253,000         225,000         243,000
Amortization of transition obligation          73,000          73,000          73,000
Other amortization and deferral                61,000          61,000          79,000
                                             --------        --------        --------
                                             $474,000        $461,000        $512,000
                                             ========        ========        ========
</TABLE>

            The assumed postretirement health care cost trend rate used in
            measuring the accumulated postretirement benefit obligation was 7.5%
            for fiscal year June 3, 2001, decreasing each year to an ultimate
            rate of 5.0% in 2005 and thereafter. The health care cost trend rate
            assumption has a significant effect on the amounts reported. For
            example, increasing the assumed health care cost trend rates by one
            percentage point in each year would increase the accumulated
            postretirement benefit obligation as of June 3, 2001 by $665,000 and
            the aggregate of the service and interest cost components of net
            periodic postretirement benefit cost for the year ended June 3, 2001
            by $69,000.
<PAGE>   25
      (c)   EMPLOYMENT AND DEFERRED COMPENSATION AGREEMENTS

            On June 12, 1995, the Company entered into a five-year employment
            agreement with its Chief Executive Officer, John A Warehime, at an
            annual base salary of $650,000 with such compensation payable
            retroactively from April 1, 1994 (the "1995 Employment Agreement").
            The 1995 Employment Agreement was amended on February 13, 1997
            (Amended Employment Agreement). The principal terms of Mr.
            Warehime's employment arrangements with the Company as amended by
            the Amended Employment Agreement are set forth below.

            The Amended Employment Agreement provides for annual increases (but
            not decreases) in the employee's annual salary equal to the greater
            of 5% of the prior year's salary or the annual percentage increase
            in the Consumer Price Index (CPI). Mr. Warehime's annual base salary
            for fiscal 2001 and 2000 was $669,000 and $636,000, respectively.
            Unless terminated by either party, the Amended Employment Agreement
            automatically renews annually on each anniversary date so that five
            years always remain on the term of the agreement. In the event the
            employee is terminated without cause, or in the event the employee
            terminates his employment after a reduction (without his written
            consent) of his duties or authority, compensation, or similar
            events, the Amended Employment Agreement provides for the payment of
            the salary and bonus (including all other benefits) over the
            remaining term of the agreement. In the event of termination due to
            death or disability, the Amended Employment Agreement provides for
            the same payment to the employee (or in the event of the death of
            the employee, his spouse, or descendants) for one year and
            thereafter the payment of supplemental pension benefits as described
            below. In addition, the Amended Employment Agreement provides for
            the reimbursement by the Company of the employee's legal and
            accounting fees up to $75,000 per year and reasonable business
            expenses incurred by the employee in connection with the business of
            the Company. The Amended Employment Agreement also provides the
            employee with various other benefits including the use of an
            automobile, disability and life insurance, and a club membership.

            The annual bonus payable to the employee under the Amended
            Employment Agreement is equal to $100,000 plus 10% of the Company's
            pretax earnings over $5.0 million provided that no annual bonus is
            payable if pretax earnings of the Company are less than $5.0
            million. The Amended Employment Agreement limits salary and the
            annual bonus payment described above to an aggregate of not more
            than $1.0 million annually. Annual bonuses can be paid in cash or
            Class A Common (non-voting) Stock at the option of the employee. For
            the years ended June 3, 2001, May 28, 2000, and May 30, 1999, the
            bonus accrued under this agreement was $331,000, $364,000, and
            $394,000, respectively.

            The Amended Employment Agreement also provides for the annual
            payment of a long-term performance bonus based upon the Company's
            performance over the prior five-year period as measured by its
            average sales growth and average increase in operating profits as
            compared to an industry peer group over the same period. The bonus
            payable is calculated based upon a formula matrix set forth in the
            Amended Employment Agreement, with such formula being recommended by
            an independent management consulting firm retained by the Company
            and approved by the Compensation Committee of the Board of
            Directors. For the years ended June 3, 2001, May 28, 2000, and May
            30, 1999, the long-term performance bonus accrued under this
            agreement was $144,000, $114,000, and $108,000, respectively.
<PAGE>   26
            The Amended Employment Agreement provides for annual supplemental
            pension benefits, commencing upon the earlier of (a) five years
            after termination of the employee (or one year following his death
            or disability) or (b) the date of retirement, payable during the
            life of the employee and upon his death for the life of his spouse.
            Such annual supplemental pension benefits are equal to 60% of
            average total compensation (including bonuses) over the latest
            three-year period prior to retirement, assuming retirement at age 65
            or later. Supplemental pension benefits are reduced based upon an
            established formula to the extent the employee retires prior to age
            65. The net present value of the cost of providing this future
            benefit is recognized by the Company over the remaining expected
            years of service. The expense recognized under this agreement was
            approximately $628,000, $428,000 and $624,000, for the years ended
            June 3, 2001, May 28, 2000, and May 30, 1999, respectively. The
            projected benefit obligation was approximately $2,811,000 and
            $2,174,000 at June 3, 2001 and May 28, 2000, respectively.

            The Amended Employment Agreement was revised effective as of August
            1, 1997 to make certain clarifying changes and to require that bonus
            payments to Mr. Warehime in any taxable year in excess of $1.0
            million would be subject to shareholder approval, which shareholder
            approval was given on August 14, 1997.

            On January 23, 1997, the Company entered into a five-year employment
            agreement with Gary T. Knisely, Executive Vice President, Secretary,
            and Counsel of the Company, at an annual salary of $175,000 with
            such compensation payable retroactively from June 1, 1996 (the
            "Knisely Agreement"). Unless terminated by either party, the Knisely
            Agreement automatically renews annually on each anniversary date so
            that five years always remain on the term of the agreement. The
            Knisely Agreement provides for annual salary increases (but not
            decreases) equal to the greater of 5% of the prior year's salary or
            the annual percentage increase in the CPI, as well as incentive
            bonuses and various other benefits. As of June 3, 2001, the
            aggregate liability of the Company under this agreement for the next
            five years is estimated to be $1,279,000, excluding annual
            performance bonuses. In the event the employee is terminated without
            cause, or in the event the employee terminates his employment after
            a reduction (without his written consent) of his duties or
            authority, compensation, or similar events, the Knisely Agreement
            provides for the payment of the salary and bonus (including all
            other benefits) over the remaining term of the agreement. In the
            event of termination due to death or disability, the Knisely
            Agreement provides for the payment of salary and bonus (including
            all other benefits) to the employee (or his spouse or other
            descendants in the event of the employee's death) for the later of
            one year from the date of such termination or the death of the
            employee.

            The Knisely Agreement also provides for annual supplemental pension
            benefits equal to 60% of the employee's average annual compensation
            (including bonuses but excluding other benefits) over the three most
            recent fiscal years prior to the employee's termination if the
            employee is no longer employed by the Company and the employee has
            attained the age of 55. Such annual supplemental pension benefits
            are payable for the remainder of the lifetime of the employee. The
            net present value of the cost of providing this future pension
            benefit is recognized by the Company over Mr. Knisely's expected
            remaining years of service. The expense recognized for supplemental
            pension benefits under this agreement was approximately $108,000,
            $45,000 and $81,000, for the years ended June 3, 2001, May 28, 2000
            and May 30, 1999, respectively. The projected benefit obligation was
            approximately $341,000 and $233,000 at June 3, 2001 and May 28,
            2000, respectively.
<PAGE>   27
            The Company also entered into a change in control severance
            agreements with several officers and executives which provides for
            termination compensation if respective individual's employment is
            terminated: (i) involuntarily within 24 months of a change in
            control or (ii) voluntarily, following a reduction in base salary,
            duties, and responsibilities within 24 months of a change in
            control. A "change in control" shall be deemed to occur if John A,
            Warehime ceases to be Chief Executive Officer of the Company or
            ceases to have the power and authority of the Chief Executive
            Officer. Pursuant to the terms of this agreement, any payment due
            thereunder shall be made over a two year period no less frequently
            than monthly and all payments during any twelve month period shall
            not in the aggregate exceed the individual's total cash compensation
            (salary and bonus) received from the Company during fiscal 2001.

            All payments made pursuant to this agreement are subject to the
            further conditions that: (i) the individual maintain the
            confidentiality of the Company's trade secrets, customer lists, and
            other proprietary information of the Company; (ii) for a period of
            two years following the termination of the officer, neither the
            individual or his employer or business associate shall enter into or
            attempt to enter into any business relationship, solicit for
            employment or employ any person, employed by the Company or its
            affiliates at any time within the six months prior to the officer's
            termination; and (iii) for a period of two years following the
            termination, the individual shall not directly or indirectly own,
            manage, operate, join, or participate in any capacity, any entity
            which is primarily engaged in a business which competes with any
            significant business of the Company or its affiliates. If all
            officers and executives subject to agreements were terminated on
            June 3, 2001 under circumstances entitling them to severance
            payments pursuant to the agreements, the aggregate amount due to
            them under these agreements would be $1,932,432.

            The Company is also committed to another employee, Patricia H.
            Townsend, under a previous employment contract, which provides for
            minimum salary levels, annual adjustments, as well as incentive
            bonuses and for a term, which ends in March 2004. Provisions
            contained in the agreement provide for continuation of the
            remuneration for the remainder of the term of the agreement in the
            event of termination, incapacity, death, or disability. The
            estimated commitment for future salaries through the duration of the
            agreement as of June 3, 2001 was approximately $226,000.

(8)   INCOME TAXES

      Total income taxes for the years ended June 3, 2001, May 28, 2000 and May
      30, 1999, were attributable to the following:

<TABLE>
<CAPTION>
                                                    JUNE 3,         MAY 28,         MAY 30,
                                                     2001            2000            1999
                                                  ----------      ----------      ----------
<S>                                               <C>             <C>             <C>
Income from operations                            $2,497,000      $5,029,000      $5,904,000
Stockholders' equity for unrealized gains on
securities and minimum pension liability              53,000              --              --
                                                  ----------      ----------      ----------

                                                  $2,550,000      $5,029,000      $5,904,000
                                                  ==========      ==========      ==========
</TABLE>
<PAGE>   28
      Income tax expense (benefit) attributable to income from operations
      consists of:

<TABLE>
<CAPTION>
                  YEAR ENDED                  YEAR ENDED                  YEAR ENDED
                 JUNE 3, 2001                MAY 28, 2000                MAY 30, 1999
           ------------------------    ------------------------    ------------------------
             FEDERAL        STATE        FEDERAL        STATE        FEDERAL        STATE
           ----------    ----------    ----------    ----------    ----------    ----------
<S>        <C>           <C>           <C>           <C>           <C>           <C>
Current    $2,468,000       335,000     4,690,000       804,000     5,602,000       986,000
Deferred     (235,000)      (71,000)     (362,000)     (103,000)     (532,000)     (152,000)
           ----------    ----------    ----------    ----------    ----------    ----------

           $2,233,000       264,000     4,328,000       701,000     5,070,000       834,000
           ==========    ==========    ==========    ==========    ==========    ==========
</TABLE>


      There is no income tax attributable to the income from foreign
      subsidiaries since the foreign entities were not subject to taxes on
      income in 2001, 2000 and 1999.

      A reconciliation of the Company's effective tax rate to the amount
      computed by applying the federal income tax rate of 35% to income before
      taxes attributable to income from operations expressed in percentages,
      follows:

<TABLE>
<CAPTION>
                                                 YEAR       YEAR       YEAR
                                                 ENDED      ENDED      ENDED
                                                JUNE 3,    MAY 28,    MAY 30,
                                                 2001       2000       1999
                                                 ----       ----       ----
<S>                                             <C>        <C>        <C>
Federal income tax rate                          35.0%      35.0%      35.0%
Increase (decrease) in taxes:
    State taxes - net of federal tax              1.9        3.3        3.4
    Income in foreign subsidiary with no tax     (7.3)      (4.6)      (1.3)
    Other items - net                            (2.3)       3.1        1.1
                                                 ----       ----       ----

Effective income tax rate                        27.3%      36.8%      38.2%
                                                 ====       ====       ====
</TABLE>
<PAGE>   29
      The tax effects of temporary differences that give rise to significant
      portions of deferred tax liabilities and deferred tax assets at June 3,
      2001 and May 28, 2000, follow:

<TABLE>
<CAPTION>
                                                       JUNE 3,           MAY 28,
                                                        2001              2000
                                                    -----------       -----------
<S>                                                 <C>               <C>
Deferred tax liabilities:
  Property, plant and equipment                     $(5,648,000)      $(5,539,000)
  Net unrealized gain on marketable securities          (88,000)               --
  Other                                                (893,000)         (635,000)
                                                    -----------       -----------

          Total gross deferred tax liabilities       (6,629,000)       (6,174,000)
                                                    -----------       -----------

Deferred tax assets:
  Inventory costs                                       242,000           193,000
  Accrued expenses and other liabilities              1,885,000         1,512,000
  Pension and postretirement benefits                   687,000           520,000
  Net operating loss carryforwards                      300,000           203,000
  Other                                                 410,000           388,000
                                                    -----------       -----------

          Total gross deferred tax assets             3,524,000         2,816,000
                                                    -----------       -----------

Net deferred tax liability                          $(3,105,000)      $(3,358,000)
                                                    ===========       ===========
</TABLE>

      In assessing the realizability of deferred tax assets, management
      considers whether it is more likely than not that some portion or all of
      the deferred tax assets will not be realized. The ultimate realization of
      deferred tax assets is dependent upon the generation of future taxable
      income during the periods in which those temporary differences become
      deductible. Management considers the scheduled reversal of deferred tax
      liabilities, projected future taxable income, and tax planning strategies
      in making this assessment. Based upon the level of historical taxable
      income and projections for future taxable income over the periods in which
      the deferred tax assets are deductible, management believes it is more
      likely than not the Company will realize the benefits of these deductible
      differences. The amount of the deferred tax asset considered realizable,
      however, could be reduced in the near term if estimates of future taxable
      income are reduced.

      The Company has not recognized a deferred tax liability for the
      undistributed earnings and tax basis differences of its investment in
      foreign subsidiaries since the earnings and investment are considered to
      be permanently invested in the businesses and, under the tax laws, are not
      subject to such taxes until distributed. The accumulated amount of such
      undistributed earnings was approximately $6,867,000 at June 3, 2001.

      At June 3, 2001, the Company has net operating loss carryforwards for
      federal and state income tax purposes of approximately $213,000 and
      $2,700,000, respectively, which are available to offset future favorable
      income, if any, through 2011 for federal and 2013 for state.
<PAGE>   30
(9)   ACQUISITIONS

      During the year ended May 28, 2000, the Company via its wholly owned
      subsidiary, Bickel's Snack Foods, Inc. purchased certain assets and
      assumed certain liabilities of York Foods, Inc., and its wholly owned
      subsidiaries, Bon Ton Foods, Inc. and York Snacks. During the year ended
      May 30, 1999, the Company purchased certain assets of Bickel's Potato Chip
      Co. Inc. (Bickel's) and Draper-King Cole, Inc. and Draper Canning Company
      (collectively "Draper"). During the year ended May 31, 1998, the Company
      purchased assets and assumed certain liabilities L.K. Bowman, Inc. and
      L.K. Bowman Pacific, Inc. (collectively "Bowman") and purchased certain
      assets of Sunnyside Foods. All of these acquisitions were accounted for
      under the purchase method and were not considered to be material to the
      Company's results of operations for the years ended May 28, 2000 and May
      30, 1999, respectively. The allocation of purchase price is as follows:

      (a)   Acquisitions made during the year ended May 28, 2000:

<TABLE>
<S>                                                     <C>
            Accounts receivable                         $ 1,496,000
            Inventory                                     1,147,000
            Other current assets                             82,000
            Property, plant and equipment                 2,737,000
            Goodwill                                      1,981,000
            Other Assets                                     13,000
            Accounts Payable                             (2,855,000)
            Debt                                            (77,000)
                                                        -----------

            Total purchase price                        $ 4,524,000
                                                        ===========
</TABLE>

      (b)   Acquisitions made during the year ended May 30, 1999:

<TABLE>
<S>                                                     <C>
            Accounts receivable                         $ 2,032,000
            Inventory                                     1,984,000
            Other current assets                             13,000
            Property, plant and equipment                 3,704,000
            Goodwill                                        100,000
                                                        -----------

            Total purchase price                        $ 7,833,000
                                                        ===========
</TABLE>

(10)  COMMITMENTS AND CONTINGENCIES

      (a)   LETTER OF CREDIT

            As of June 3, 2001, the Company's wholly-owned reinsurance company
            had outstanding two letters of credit in the amount of $280,000 and
            $860,000 as security for the reimbursement of losses arising from
            the reinsurance assumed by the Company.
<PAGE>   31
      (b)   LEGAL MATTERS

            DERIVATIVE ACTION

            On September 13, 1996, certain Class A common stockholders filed a
            complaint in equity against six of the Corporation's directors and
            the estate of a former director in the Court of Common Pleas of York
            County, Pennsylvania (the complaint). The suit also names the
            Corporation as a nominal defendant. The suit sought various forms of
            relief including, but not limited to, rescission of the board's
            April 28, 1995 approval of John A. Warehime's 1995 Employment
            Agreement and the board's February 10, 1995 adjustment of director's
            fees. (Since the filing of this lawsuit, John A. Warehime's 1995
            Employment Agreement was amended.) In addition, the plaintiffs
            sought costs and fees incident to bringing suit. On November 4,
            1996, the complaint was amended to add additional plaintiffs. On
            June 24, 1997, the Court dismissed the amended complaint for failure
            to make a prior demand. An appeal was filed from the court's June
            24, 1997 Order. On December 2, 1998, the Superior Court of
            Pennsylvania held that the derivative plaintiffs had made adequate
            demand.

            On May 12, 1997, a written demand was received by the Corporation
            from the attorney for those Class A common stockholders containing
            similar allegations and the allegations raised by the Class A common
            stockholders were investigated by a special independent committee of
            the Board of Directors and found to be without merit.

            The director defendants filed an Answer and New Matter to the
            Amended Complaint on March 17, 1999.

            WAREHIME FAMILY LITIGATION

            On February 21, 1997, Michael A. Warehime, a Class B shareholder,
            and certain Class A shareholders filed motions for a preliminary
            injunction against the Corporation, John A. Warehime, in his
            capacity as voting trustee, and all certain directors of the
            Corporation in the Court of Common Pleas of York County,
            Pennsylvania against a Proposal of the Board of Directors to amend
            and restate the Corporation's Articles of Incorporation in the
            manner hereafter described.

            On February 13, 1997, the Board of Directors proposed an amendment
            and restatement of the Corporation's Articles of Incorporation (the
            "Amended and Restated Articles") which provides that if all of the
            following Class B Shareholders (or their estates upon the death of
            such stockholders), Michael A. Warehime, John A. Warehime, Sally W.
            Yelland, J. William Warehime, and Elizabeth W. Stick (all members of
            the Warehime family), do not agree in writing to the composition of
            the Board of Directors or other important matters specified below on
            or after the 1998 annual shareholders meeting, the trustees of the
            Corporation's 401(k) Savings Plan (or a similar employee benefit
            plan), acting as fiduciaries for the employees who participate in
            the Plan, and the Class A shareholders may become entitled to vote
            in the manner described in the document. Pursuant to the Company's
            Bylaws, nominations for director must be submitted to the Company in
            the manner prescribed by the Bylaws no later than June 1 of the year
            in which the meeting is to occur.

            The Amended and Restated Articles create a Series C Convertible
            Preferred Stock and also classified the terms of the Board of
            Directors commencing with the election at the 1997 annual
            shareholders' meeting and permit directors to be elected for
            four-year terms as permitted by Pennsylvania law.

            The motions for a preliminary injunction were dismissed by the Court
            on June 24, 1997. The Class B shareholders on June 25, 1997 approved
            the Amended and Restated Articles (John A. Warehime, being the sole
            Class B shareholder voting affirmatively in his capacity as voting
            trustee) and the Amended and Restated Articles became effective June
            25, 1997.
<PAGE>   32
            In August 1997, the Board of Directors proposed a further amendment
            (the "Amendment") Amended and Restated Articles to expand the
            definition of "disinterested directors" in the manner described
            below, and to approve certain performance based compensation for
            John A. Warehime solely for the purpose of making the Corporation
            eligible for a federal income tax deduction pursuant to Section
            162(m) of the Internal Revenue Code of 1986, as amended. A special
            meeting was scheduled for August 14, 1997 (the "Special Meeting") to
            vote on these proposals. On August 8, 1997, Michael A. Warehime
            filed a motion in the Court of Common Pleas of York County,
            Pennsylvania to prevent John A. Warehime, in his capacity as voting
            trustee from voting on these proposals and to enjoin the Amendment.
            This Motion was denied by the court on August 11, 1997. The
            Amendment and the proposal under Section 162(m) were approved by
            Class B Shareholders (John A. Warehime was the sole Class B
            shareholder to vote affirmatively, in his capacity as voting
            trustee) on August 14, 1997 and the Amendment became effective on
            August 14, 1997.

            Under the Amendment, the definition of "disinterested directors"
            means the person who, in the opinion of counsel for the Corporation,
            meet any of the following criteria: (i) disinterested directors as
            defined in Section 1715(e) of the Pennsylvania Business Corporations
            Law of 1988, as amended; (ii) persons who are not "interested"
            directors as defined in Section 1.23 of The American Law Institute
            "Principles of Corporate Governance: Analysis and Recommendations"
            (1994); or (iii) persons who qualify as members of the Audit
            Committee pursuant to Section 303.00 of the New York Stock
            Exchange's Listed Company Manual.

            Michael Warehime filed an appeal from the denial of his motion to
            enjoin the previously described Amendment to the Company's Amended
            and Restated Articles. On December 2, 1998, a majority panel of the
            Superior Court of Pennsylvania issued a decision holding that
            although John Warehime had acted in good faith in voting for the
            Amendment to the Amended and Restated Articles as trustee of the
            Warehime voting trust, Mr. Warehime breached his fiduciary duty to
            the beneficiaries of the Warehime voting trust in voting for the
            Amendment. On November 29, 1999, the Supreme Court of Pennsylvania
            granted a petition for allowance of appeal, filed by John Warehime,
            and granted a cross-petition for appeal filed by Michael Warehime.

            On August 13, 1999, Michael Warehime filed a complaint in equity in
            the Court of Common Pleas of York County, Pennsylvania, naming as
            defendants Arthur S. Schaier, Cyril T. Noel, Clayton J. Rohrbach,
            Jr., John A. Warehime, and the Company. The complaint sought a court
            order declaring that the September 1999 election for the board of
            directors of the Company be conducted in accordance with the
            Articles of Incorporation of the Company as they existed prior to
            June 25, 1997, an order declaring that the Series C Convertible
            Preferred Stock cannot be voted, and an order that the following
            candidates for the board of directors of the Company proposed by
            Michael Warehime, Sally Yelland, Elizabeth Stick and J. William
            Warehime be accepted by the Company and listed on the ballot to be
            distributed at the annual meeting of shareholders of the Company to
            be held on September 16, 1999: Michael Warehime, Daniel Meckley,
            Elizabeth Stick, Sonny Bowman, and John Denton. The basis for the
            complaint was the December 2, 1998 decision of the Pennsylvania
            Superior Court which held that John A. Warehime breached his
            fiduciary duties in voting for the Amended and Restated Articles as
            trustee of the Warehime voting trust. The requested relief was
            denied by the Court of Common Pleas of York County and Michael
            Warehime appealed to the Superior Court of Pennsylvania.

            On September 12, 2000, the Superior Court of Pennsylvania stated, in
            a Memorandum decision, that the June 25, 1997 shareholder vote,
            which adopted the Amended and Restated Articles of Incorporation of
            the Corporation should be set aside, and remanded the case to the
            Court of Common Pleas of York County to determine what further
            relief would be appropriate. On remand, the Court of Common Pleas of
            York County entered an Order on October 10, 2000 declaring that the
            Amended and Restated Articles of Incorporation were set aside and
            that an election should be held without the Amended or Restated
            Articles of Incorporation. On October 11, 2000, the Supreme Court of
            Pennsylvania entered an Order staying the Order of the Court of
            Common Pleas of York County.
<PAGE>   33
            On November 27, 2000, the Supreme Court of Pennsylvania reversed and
            remanded the Order of the Superior Court issued on December 2, 1998
            and, in effect, the Order of the Superior Court issued September 12,
            2000. In reversing the Superior Court's Order, the Supreme Court of
            Pennsylvania held that John A. Warehime, the trustee of the voting
            trust, did not breach his fiduciary duties in voting the trust
            shares in favor of the Amended and Restated Articles of
            Incorporation. The Supreme Court remanded the case to the
            Pennsylvania Superior Court to consider other issues raised by
            Michael A. Warehime.

            On May 4, 2001, the Superior Court of Pennsylvania, on remand from
            the Pennsylvania Supreme Court to decide several remaining issues,
            held that the 1997 amendments to the Corporation's Amended and
            Restated Articles of Incorporation "violated principles of corporate
            democracy" and should be invalidated even though the Superior Court
            found the directors acted in good faith and their actions in
            approving the amendments did not result in a breach of their
            fiduciary duties. A petition for allocatur was filed with the
            Pennsylvania Supreme Court requesting that the Pennsylvania Supreme
            Court review the Superior Court's May 4, 2001 ruling.

            The Corporation is involved in various other claims and legal
            actions arising in the ordinary course of business. In the opinion
            of management, the ultimate disposition of these matters will not
            have a material adverse effect on the Corporation's consolidated
            financial position, results of operations or liquidity.

      (c)   STOCK REPURCHASE PLAN

            The Company has agreed to purchase the Company's Class A Common
            Stock purchased or owned by employees prior to April 20, 1988 at
            appraised value. This guarantee of repurchase by the Company is for
            an indefinite period of time. No shares were repurchased under this
            plan for the years ended June 3, 2001 and May 28, 2000. Shares
            repurchased under this plan amounted to 22 during the year ended May
            30, 1999. As of June 3, 2001, there are 10,557 shares outstanding
            that would be eligible for this plan. The maximum commitment, if
            requested, for all eligible shares would be approximately
            $1,013,000, based on the most recent appraised value per share as of
            March 31, 2001.

      (d)   SALES AND LEASE AGREEMENT

            In February 2001, the Company entered into a renewable Sales and
            Lease agreement to lease the Colusa plant for six (6) years
            beginning July 1, 2001 and to purchase 6 million pounds of tomato
            paste on a cost basis formula from the lessee during the second
            through sixth year of the agreement. In addition, the Company has
            the option to purchase an additional 6 million pounds if the cost
            basis formula is more favorable than market prices. The Company
            expects to use this annual purchase commitment through normal
            operations.
<PAGE>   34
(11)  FOREIGN OPERATIONS

      The Company's foreign subsidiary, Alimentos Congelados Monte Bello, S.A.
      (ALCOSA) produces food products in Guatemala, which are sold to Sunwise
      Corporation in the United States. The revenues generated by the operations
      in Guatemala and the assets employed in generating those revenues are as
      follows:

<TABLE>
<CAPTION>
                           JUNE 3,          MAY 28,          MAY 30,
                            2001             2000             1999
                        -----------      -----------      -----------
<S>                     <C>              <C>              <C>
Revenues                $13,152,000      $15,863,000      $15,213,000
Cost of goods sold       12,294,000       13,036,000       13,963,000
Assets                    7,907,000       10,580,000        8,942,000
</TABLE>

ALCOSA maintains its accounting records in quetzales, although, for financial
reporting purposes, the accounting records have been remeasured to be expressed
in U.S. dollars. The financial statements of ALCOSA have been translated to
their U.S. dollar equivalents prior to being consolidated. Assets and
liabilities have been translated to their U.S. dollar equivalents based on rates
of exchange prevailing at the end of the period except for inventories, fixed
assets, deferred and prepaid expenses, and other assets, which have been
translated at historical rates. Revenue and expense accounts have been
translated at average exchange rates during the period except for depreciation
of fixed assets, which is based on the historical rate. The aggregate exchange
gains and losses arising from the translation of foreign assets and liabilities
and from foreign currency transactions are included in income under the caption
of Other income - net and amount to a loss of $60,000, a loss of $315,000 and a
gain of $13,000, for the years ended June 3, 2001, May 28, 2000, and May 30,
1999, respectively. At June 3, 2001, the prevailing exchange rate was Q 7.80 to
U.S. $1.00.
<PAGE>   35
(12)  RECONCILIATION OF NUMERATOR AND DENOMINATOR FOR BASIC AND DILUTED EARNINGS
      PER SHARE

<TABLE>
<CAPTION>
                                                   YEAR            YEAR            YEAR
                                                   ENDED           ENDED           ENDED
                                                  JUNE 3,         MAY 28,         MAY 30,
                                                   2001            2000            1999
                                                ----------      ----------      ----------
<S>                                             <C>             <C>             <C>
Numerator for basic earnings per share:
Net earnings applicable to
   Common stock                                 $6,620,000      $8,576,000      $9,495,000
Effect of dilutive securities:
8-1/4% cumulative convertible
   Preferred stock                                  30,000          31,000          31,000
4.40% cumulative convertible
   Preferred stock                                  11,000          12,000          13,000
                                                ----------      ----------      ----------

Net earnings assuming dilution                  $6,661,000      $8,619,000      $9,539,000
                                                ==========      ==========      ==========

Denominator:
Basic weighted-average shares                      714,565         715,249         716,974
Effect of dilutive securities:
8-1/4% cumulative convertible
   Preferred stock                                   3,670           4,140           4,921
4.40% cumulative convertible
   Preferred stock                                  10,000          10,000          10,000
                                                ----------      ----------      ----------

Diluted weighted-average shares                    728,235         729,389         731,895
                                                ==========      ==========      ==========

Basic earnings per share                        $     9.26      $    11.99      $    13.24
Diluted earnings per share                            9.15           11.82           13.03
                                                ==========      ==========      ==========
</TABLE>

(13)  STATEMENT OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                   YEAR            YEAR            YEAR
                                                   ENDED           ENDED           ENDED
                                                  JUNE 3,         MAY 28,         MAY 30,
                                                   2001            2000            1999
                                                ----------      ----------      ----------
<S>                                             <C>             <C>             <C>
Supplemental disclosure of cash paid for:
  Interest                                      $4,698,000      $4,098,000      $3,061,000
  Income taxes                                   3,848,000       5,916,000       5,983,000
                                                ==========      ==========      ==========
Non-cash investing activities, acquisition
  of business:
     Fair value of assets acquired              $       --      $7,456,000      $7,833,000
     Cash paid                                          --       4,524,000       7,833,000
                                                ----------      ----------      ----------

     Liabilities assumed                        $       --      $2,932,000      $       --
                                                ==========      ==========      ==========
</TABLE>
<PAGE>   36
                            QUARTERLY FINANCIAL DATA

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Dollars in thousands                          First       Second        Third       Fourth
(except per share)                           quarter      quarter      quarter      quarter
-------------------------------------------------------------------------------------------
<S>                                          <C>          <C>          <C>          <C>
2001
Net sales                                    $65,034      $86,569      $82,212      $84,431
Gross profit                                 $15,724      $22,470      $18,637      $18,426
Net earnings                                 $ 1,174      $ 3,208      $   576      $ 1,702
Net earnings per common share - Basic        $  1.63      $  4.47      $   .79      $  2.36
Net earnings per common share - Diluted      $  1.61      $  4.41      $   .79      $  2.34
Cash Dividends per common share              $  .275      $  .275      $  .275      $  .275
-------------------------------------------------------------------------------------------
2000
Net sales                                    $61,621      $82,539      $78,926      $77,179
Gross profit                                 $15,870      $21,318      $19,215      $18,568
Net earnings                                 $ 1,760      $ 3,569      $ 1,678      $ 1,612
Net earnings per common share - Basic        $  2.44      $  4.99      $  2.33      $  2.23
Net earnings per common share - Diluted      $  2.41      $  4.91      $  2.30      $  2.20
Cash Dividends per common share              $  .385      $  .275      $  .275      $  .275
</TABLE>

First, second and third quarter amounts for fiscal 2001 are restated to correct
depreciation expense recorded in the fourth quarter. Gross profit was previously
reported as $15,849,000, $22,595,000 and $18,762,000 for the first, second and
third quarters of fiscal 2001, respectively. Net earnings were previously
reported as $1,251,000, $3,288,000, and $659,000 for the first, second and third
quarters of fiscal 2001, respectively. Net earnings per common share-basic were
previously reported as $1.74, $4.59, and $.91 for the first, second and third
quarters of fiscal 2001, respectively. Net earnings per share-diluted were
previously reported as $1.72, $4.52, and $.91 for the first, second and third
quarters respectively.

MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

Although the Corporation's Class A. Common Stock is currently traded on the
NASDAQ Bulletin Board under the symbol "HNFSA," trading in the Class A Common
Stock is very sporadic. As a result of the limited market for Class A Common
Stock, shareholders are cautioned not to place undue reliance on bid prices
contained herein as indicators of the true value of the shares of Class A Common
Stock.

The following table sets forth the high and low bid prices per share of the
Class A Common Stock on a quarterly basis of the past two fiscal years as
provided by NASDAQ, as well as dividends paid per share.

<TABLE>
<CAPTION>
Quarter Ended                         High           Low         Dividends
-------------                         ----           ---         ---------
<S>                                  <C>            <C>          <C>
August 29, 1999                      $61.00         $60.00         $0.385
November 28, 1999                    $61.25         $61.00         $0.275
February 27, 2000                    $71.00         $61.00         $0.275
May 28, 2000                         $61.00         $61.00         $0.275
August 27, 2000                      $61.00         $57.00         $0.275
November 26, 2001                    $57.00         $55.00         $0.275
February 25, 2001                    $55.50         $51.00         $0.275
June 3, 2001                         $51.00         $50.00         $0.275
</TABLE>
<PAGE>   37
As of June 3, 2001, there were 375 record holders and approximately 210
beneficial holders of the Class A Common Stock.

DIVIDEND POLICY

The Company has maintained a policy of paying a quarterly dividend of $0.275 per
share. In addition, on August 13, 1999, the Company paid a special 10% dividend
or $0.11 per share. On August 15, 1998 the Company paid a special 15% dividend
of $.165/share. The continuing payment by the Company of dividends in the future
is the sole discretion of its Board of Directors and will depend, among other
things, upon the Company's earnings, its capital requirements and financial
condition, as well as other relevant factors.


ANNUAL MEETING

At this time no Annual Meeting of Shareholders has been scheduled.

ANNUAL AND OTHER REPORTS

The Company is required to file an annual report on Form 10-K for its fiscal
year ended June 3, 2001, with the Securities and Exchange Commission. Copies of
the Form 10-K annual report and the Company's quarterly reports may be obtained
without charge by contacting:

                  Gary T. Knisely
                  Hanover Foods Corporation
                  1486 York Road
                  P.O. Box 334
                  Hanover, PA  17331
                  717-632-6000